11/11/2009 @ 6:00PM

Power Outage

Last month Karen Ignagni held a conference call with reporters to announce the release of a new study commissioned by her lobby, America’s Health Insurance Plans (AHIP). It found that the health care reform bill, then making its way through the Senate Finance Committee, would raise the cost of every family’s health care by $400 a year. Ignagni’s accompanying comments were gentle even if the intent was forceful. “We strongly believe that reform must make the system more affordable,” she said.

Many economists would agree with the report’s findings. It seems impossible to force insurance plans to take all comers, as the bill does, without attracting people who are sick and for whom care is costly. But the timing of the release, on the eve of an important committee vote, was meant to provoke–and it did.

The White House lashed out, calling the report “self-serving” and “hard to take seriously.” There was enough pressure that even PricewaterhouseCoopers, the accounting firm that ran the numbers, put out a press release backing away from the report. The next day the Senate Finance Committee voted 14-9 to pass the $830 billion health care overhaul.

AHIP had tried and failed to kill the bill, and looked impotent. The setback was the crest of a four-month campaign by the White House, congressional leaders and health reform activists to demonize HMOs and their lobbyists. “They’re villains,” said House Speaker Nancy Pelosi in July, getting the ball rolling.

Five days after the AHIP report, the president himself weighed in, dedicating his weekly radio address to insurance-industry bashing. “They’re filling the airwaves with deceptive and dishonest ads. They’re flooding Capitol Hill with lobbyists and campaign contributions. And they’re funding studies designed to mislead the American people,” Obama said.

Ignagni and her lobby are unused to being on the losing side of the political battlefield. What changed is that she decided, or was forced, to directly take on President Obama, who sits atop Forbes’ list of the World’s Most Powerful People.

The seeds were planted last year for this conflict. During the 2008 presidential campaign, Obama, along with his Democratic primary opponents, promised to remake the health care system. With galloping costs and increasing numbers of uninsured families, abysmal levels of public safety and horrendous customer service, health care was an industry in need not just of reformation, but of reinvention.

This was a scary notion to lobbies like AHIP, which represents 1,300 HMOs that operate profitably yet win low marks from their customers. (The industry ranks 36th out of 44 major industries in customer satisfaction, according to the American Customer Satisfaction Index.) Ignagni anticipated what was coming and reportedly used her considerable power as the industry’s main spokesperson to convince the executives who pay her group’s bills to take a more conciliatory approach to reform.

Ignagni had a difficult job no matter which way the political winds were blowing. She’s known for her tight, forced smiles and her officious demeanor. Yet she’s also well-versed in the minutiae of policy and a talented public speaker. She’s also been running the lobby, which many consider one of the top five most powerful in Washington, for longer than any of the current HMO chief executives have been running their companies. With her $1.6 million annual compensation and name recognition, Ignagni–not her board of directors–is thought to set the agenda.

As reform loomed, Ignagni argued (along with more reform-minded companies such as
Aetna
and Kaiser Permanente) that some of the industry’s more controversial practices would make it a target. One is writing premiums based on medical histories, which prevents sympathetic patients such as cancer survivors from getting affordable coverage. Another practice that has gotten HMOs in trouble, especially in California, is “rescissions,” whereby HMOs cancel policies retroactively after a patient gets sick.

During the Bush years, while the industry was defending itself against criticism of these practices, Ignagni chalked up numerous victories. In 2003, Medicare began lavishly subsidizing the HMO operations of
Humana
and
UnitedHealth
; HMOs now collect about $12 billion a year from Medicare above what it would cost to keep the elderly on the government plan.

In addition, the Medicare Part D prescription drug plan, passed before the 2004 elections, was a huge boon to AHIP’s members, who’d already been selling supplemental insurance to Medicare recipients. Ignagni was able to cast HMOs as supporters of efforts to expand coverage to low-income children, even as the actual bills were vetoed by President Bush. From 2003 to 2007, during the Bush-years expansion,
Morgan Stanley’s
HMO stock index rose five-fold.

Twice Ignagni fought off attempts by congressional Democrats to pare back the Medicare HMO subsidies, with help from the elderly customers themselves, some of whom AHIP flew into Washington to act as citizen lobbyists. Ignagni kept her cool during these battles, despite being called a liar by California Rep. Pete Stark, after Ignagni claimed the cuts to Medicare HMOs would fall most heavily on minorities. The HMO lobby’s influence was such that the Bush administration threatened in its last two years to veto any health care bill that included cuts to Medicare HMOs.

That all changed after the 2008 election, and the industry started listening more actively to Ignagni’s pragmatic side. Two weeks after President Obama won, AHIP and the Blue Cross & Blue Shield Association announced they would accept new laws forcing HMOs to take all comers, healthy or sick. The groups said such a move would work only if the legislation forced everyone to buy insurance, in order to spread risk by keeping healthy people paying into the system. The constituent HMOs went along, even as some privately grumbled that it would never work.

The Ignagni olive branch got a favorable reception. She continued to be officially included as part of the Washington coalition devoted to fixing the system. At a White House health summit in March she was quoted as saying, “you have our commitment to play, to contribute and to help pass health care reform this year.” She appeared again at the White House in May as part of a stakeholders meeting, dedicated to cutting $2 trillion over 10 years.

Yet the friendly invitations started getting lost in the mail as summer arrived and talk began heating up about a Medicare-like public plan that would compete with private HMOs. While Ignagni supported the idea of health care reform, she was always vocally opposed to the idea of creating a public plan, an option that kept getting put back on the table by senior Democratic leaders on the Hill.

Investors began to flee HMO stocks as talk spread of a public option. The bill out of the late Sen. Ted Kennedy’s Health, Education and Labor Committee in June included such a plan, as did all the bills written in the House. One research report by UnitedHealth-owned Lewin Group said a public plan could attract 100 million people away from private HMOs by offering better rates.

Ignagni had two choices: She could do what one of her predecessors, Charles “Chip” Kahn, now a hospital lobbyist, had done when confronted with HillaryCare in 1993–blast it over the airwaves with “Harry and Louise” attack ads. Or she could keep working through the system. The Finance Committee, filled with moderates, looked like a good place to work out a compromise that would regulate HMOs but not bury them.

The diplomatic approach didn’t work out as planned. The Senate Finance Committee version of the bill lacked a public plan, but included “co-ops” that present another flavor of government-backed competition to private HMOS. After getting slapped down by the White House for issuing AHIP’s critical report, Ignagni is now living mostly outside the fence of decision makers. On Nov. 7, the House passed its bill in a squeaker, 220-215. The bill, as written, includes the industry’s bane: a public insurance option.

Now it’s on to the Senate for what will surely be weeks of debate. There is still time for the HMO lobby and its gritty leader to put down its conciliatory strategy and start carpet-bombing again. Unless playing nice is the new power play.